President Reagan plunged into a new political battle, potentially more divisive than the budget and tax fights, with his proposals yesterday to trim future Social Security benefits and impose stiff financial penalties for early retirement.
Reagan did what no previous American president has ever dared do -- urge Congress to take a major slice from the most cherished and widely supported benefits program on the books.
While the plan was carefully crafted to preserve retirement benefits for those now in the system, allow them to increase their outside earnings without penalty and hold out the promise of future payroll tax relief for younger workers, it stirred immediate controversy.
Chairman Claude Pepper (D-Fla.) of the House Select Committee on Aging described the plan as "nothing more than a wholesale assault on the economic security of America's elderly population," and two major organizations of retirees chimed in on cue with their denunciations.
In general reaction in Congress was more moderate, with Rep. J.J. Pickle (D-Tex.), chairman of the House Ways and Means subcommittee on Social Security, calling Reagan's proposal "a sincere package" that could provide the basis for "a bipartisan approach" to the financing problems facing the Social Security trust fund. Senate Finance Committee Chairman Bob Dole (R-Kan.) said the plan would "meet important objectives" being sought in other ways by members of his committee.
But even those who conceded that some reductions in the nation's oldest and most popular income-support system were made inevitable by inflation, lagging economic growth and a sharp rise in the number of retired persons said the unexpected sharpness of Reagan's cutbacks guaranteed a lengthy and bitter political debate. Many veterans on Capitol Hill said they never expected to see the day when a president would risk his political popularity on the Social Security issue to the extent that Reagan had done.
The sacred character of the Social Security system and the political power of its millions of beneficiaries have made politicians -- including Reagan -- shy away from tampering with it. During the campaign, Reagan repeatedly denied Democratic changes that he favored making Social Security "voluntary," and instead vowed -- in a speech last October that was typical of his utterances -- to "defend the integrity of the Social Security system . . . and make sure benefits are adjusted to reflect the cost of living."
Last February, when he presented his economic plan to Congress and the country, Reagan said that "the social safety net" would continue to protect "the full retirement benefits of the more than 31 million Social Security recipients . . . along with an annual cost-of-living increase."
In weighing the alternatives he was given for averting the threatened exhaustion of the Social Security trust find Reagan -- according to White House aides -- insisted that the specific terms of his earlier pledges be honored. For that reason, the White House rejected a Senate Finance Committee proposal to trim $8 billion by making a minor adjustment in the system's cost-of-living formula.
As a result of Reagan's insistence, the existing retirement age, benefits package and cost-of-living adjustment were protected -- for those now drawing retirement pay. "The sole impact today's proposals would have on the . . . beneficiaries now on the rolls would be a three-month delay in the automatic cost-of-living increase scheduled for July, 1982," Health and Human Services Secretary Richard S. Schweiker said yesterday.
But critics complained that Reagan has honored his campaign pledge only at the price of unnecessarily severe restrictions on disability benefits for almost 3 million people and sharp reductions in the share of their retirement income that today's workers can expect to receive from Social Security. There were accusations that the cuts went far beyond what was necessary to meet the immediate trust-fund problem and were engineered to help balance the budget while cutting taxes and boosting defense spending.
"They've gone overboard," said Laurie Fiori, lobbyist for the American Association of Retired Persons. "It's overkill."
Robert Ball, a former Social Security commissioner who now is a leader of a coalition of 70 organizations seeking to preserve the system's benefits, said the contention that "they're taking advantage of a temporary financing problem to make permanent reductions" in benefits and beneficiaries will be a major issue in the coming debate.
It was evident that the administration had walked a political tightrope in fashioning its proposal. Retirees constitute a powerful and fast-growing political bloc, not only because of their raw numbers but because of their heavy voting percentage. The Census Bureau reported that 7 out of every 10 persons between ages 65 and 74 said they voted in 1980 -- twice the rate of the youngest eligible to vote. A Gallup poll found that Reagan got his biggest share of the vote among those closest to his own age bracket.
Those now on the rolls would have their benefits maintained and indexed as before -- except for the three-month delay -- and would have the current limit on outside earnings phased out over the next three years.
But those now nearing retirement age -- a sizable bloc who also vote in large numbers -- would fare less well. If they retired at 62, as more and more people are opting to do, they would receive 55 percent of their computed benefits, instead of the current 80 percent, and their spouse's benefits would be reduced proportionately.
The plan also attempts to strike a political bargain appealing to young people, particularly to the big "baby-boom" age cohort now between 25 and 35. For years, political observers have been predicting that an intergenerational conflict will accompany the aging of the population. In the next 50 years, the ratio of workers to retirees will decline from the current 3 to 1 to 2 to 1.
The advance warning signs of the impact of that vast demographic change are found in the sharp increase in Social Security payroll taxes. In the past 10 years alone, the tax rate for employe and employer has gone up 25 percent on an expanded wage base.
To ease this tax burden, by 1987 the Reagan plan would reduce the average monthly payment for a 65-year-old retiree by $27 and for a 62-year-old retiree by $232. According to Schweiker, that and other Reagan cutbacks would allow the average young person just entering the workforce to pay $33,600 less in Social Security taxes over a working lifetime than would otherwise be the case.